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How family office investments are changing


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During a time when almost everyone is re-evaluating their priorities and strategies, families of high and ultra-high net worth are reflecting on their legacies and making major transformations in how they invest their wealth.

Some of the changes to family office investment management are fueled by the pandemic and other recent developments, while others have been in the works for years.

Why family office investment strategies are shifting

Prior to the Great Recession of 2008-9, family offices investments were managed in a similar way to endowments at Ivy League universities, Kirby Rosplock wrote in The Complete Family Office Handbook: A Guide for Affluent Families and the Advisors Who Serve Them.

"Family offices have historically focused on liquid bond and equity markets, passive alternative investments, such as allocations to hedge fund and private equity managers, and direct property investments," the Gilmartin Group explained.

Rosplock believes it was the "watershed market events of 2008" that led many family offices away from this more passive type of investing.

"Many family office investors realized that they do not have to invest and operate as their larger institutional counterparts because they have different goals, objectives, incentives, and constraints," Rosplock said.

For one thing, she noted, family office investments often have a higher risk tolerance than traditional investors. They are designed to provide funds for multiple generations, which means they can focus on investment opportunities with the potential for long-term appreciation, even if there is some volatility in the short term. 

Family offices also are not subject to the same diversification, holding period, or income regulations as traditional investors, so they can take advantage of more unconventional opportunities.

Family office investment trends

Keeping it private

Family offices are uniquely positioned to avail themselves of private equity investment opportunities, as few other entities have the ability to outlay such a large amount of capital and keep it tied up for an indeterminate amount of time.

Historically low interest rates have also contributed to the attractiveness of private equity over more traditional forms of investment, the Gilmartin Group noted.

The numbers confirm the story: the Gilmartin Group cites UBS' Global Family Office Report 2021, which reveals 83 percent of family offices invest in private equity, with 77 percent making expansion/growth equity investments. 

Family offices investing in private equity are taking a more direct approach than in the past, as the Global Family Office Report 2021 indicates a sharp drop in the use of funds of funds and a steep rise in co-investments and direct investments.

Family offices may prefer direct deals because, although riskier, they allow for more control, more flexibility, and fewer fees than private equity funds, the Handbook noted.

Family offices are seeking value-based investments

Risk tolerance and the potential for returns aren't the only drivers of family office investment strategy. Investors at large are increasingly letting their values guide their investment decisions, with more than $17 trillion, or one of every three dollars under professional management in the U.S., going toward sustainable investment strategies as of 2019, according to the US SIF Foundation.

Family offices are buying into the trend as well, with 56% engaged in sustainable or ethically-minded investing as of 2021, UBS reports. According to the organization's 2019 report, thematic investing is the most common approach and involves focusing investments in a particular area such as clean energy or education.

Integration of environmental and social governance (ESG) factors into analysis and valuation is another way family offices incorporate their values into their investments, while some offices take a more active approach, using their influence to drive companies they invest in toward more sustainable principles.

Why are family offices and family-owned enterprises in particular paying extra attention to ESG principles, especially when they aren't subject to the same governmental regulations as other investors and businesses?

In part, it's because of reputational pressures, said EY's Helena Robertsson. Even more than profits and investment returns, family offices and enterprises have a legacy to consider. And the more family offices focus on sustainability and ESG, the more their peers are inspired to do the same.

Venturing into venture capital

In some ways, venture capital marries the key qualities of private equity and values-based investment. Like private equity, VC requires large capital outlay and the potential for high ROI while also requiring patience and a high risk tolerance.

Perhaps to a greater degree than private equity, however, VC also allows family offices the opportunity to make value-driven funding decisions and have a direct impact on the startups in which they invest.

Many family offices begin their foray into VC through funds, but when they do graduate to direct investment, "most family offices also provide strategic guidance, participate on the board and facilitate connections to other investors," the Gilmartin Group said.

In fact, such investing has become a way for families to gain buy-in from younger generations and to "actualize their giving" through methods other than philanthropy, Rosplock noted in the Handbook.

"A recent interview with a financial family revealed that education through venture capital with an impact orientation has been a powerful teaching tool for their adult children," she wrote.

Family office accounting software simplifies wealth management

Because of their unique makeup and investment management strategies, single family and multi-family offices face specific accounting challenges. Many still rely on manual processes to manage accounting, approvals, and investments. Family members often lack insight into the performance of individual companies and investments, especially within a multi-entity family office. This can slow them down and limit the potential to grow by identifying new opportunities to improve profits.

The lack of digital technology, including family office accounting software, also makes it more difficult to transfer knowledge and processes to younger generations seeking to become more involved in family office management.

Gravity’s family office accounting software makes it easy to manage a family’s assets, including business enterprises with many different products and services, real estate, private investments or venture capital investments, as well as publicly-traded stocks and global currencies.

Accountants can manage multiple companies within a single shared chart of accounts and analyze trends within one company or compare several side-by-side within the same screen.    

Because it’s built on the Microsoft Power Platform, Gravity allows family offices to use Power BI to consolidate information into easy-to-digest, visually appealing charts and graphs for family members who may not have the interest or financial acumen to understand complicated sets of numbers. You can personalize access for each stakeholder for added security. The platform also gives your family office robust security and privacy features so they have peace of mind knowing their wealth will be protected.

See why more family offices trust Gravity to manage their wealth for generations. Schedule a demo today.

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